Wednesday, April 25, 2012

10 Big Businesses That Barely Pay Taxes

While the average American may be shelling out thousands of dollars each year in taxes to the federal government, many businesses are paying incredibly low tax rates, or none at all, despite raking in hundreds of millions in profits. What allows this to happen? While corporations may be considered people in other ways, they are given tax breaks and loopholes that the average person just can’t get, and with huge teams of lawyers and accountants on staff, they’re more than ready to game the system to get all they can. Officially, the corporate tax rate in the U.S. is around 35%, but many corporations pay only a small fraction of that amount, and some have even gotten hefty refunds back from the U.S. government. These tax issues have been major news lately, bringing the ire of many people who feel that corporations need to pay their fair share. Here we highlight some of the worst corporate offenders when it comes to paying little or no taxes this year and in years past.

GE has raked in more than $81 billion during the past decade, but little of that profit has been returned to the government in the form of taxes. While the corporate tax rate has held steady at 35%, GE has paid an average of just 2.3% of its income in taxes since 2002. And that’s just an average, some years the company didn’t pay taxes at all, getting off scot-free in 2002, 2008, 2009, and 2010 (if you’re keeping count, that’s nearly half the years since 2002). While this data comes from an independent research group, the company itself disputes the results, saying that it paid 25% in the U.S. and a 29% rate globally. Of course, GE’s claims may not be entirely accurate, as those numbers also include deferred taxes which the corporation can push back year after year. How do they avoid paying taxes? A combination of government subsidies, deductions on employee benefits, and overseas tax exemptions have helped GE stay well below the standard 35% rate.

DuPont took a hit in the recession, but they managed to make record profits in 2010 thanks in part to some interesting accounting practices that allowed them to not only avoid paying federal income taxes but to also get a $109 million tax benefit from the government. The company has since become a major talking point in debates about how to reform corporate taxes and with good reason: DuPont has stated that they are complying with all tax laws and regulations in every jurisdiction in which they operate. This may be true, as the company uses legal tax breaks and credits for research and development and domestic manufacturing to lower their tax bills. In past years, DuPont hasn’t paid the full 35% either, paying an average of just 17.7% in taxes on its $14.7 billion in profits from 2001 to 2010.

According to a study by two nonprofit groups, Verizon hasn’t paid a cent in taxes for the past three years. The telecommunications giant not only hasn’t paid taxes in years, it actually makes money from the government in the form of tax subsidies and is the third largest collector of these benefits in the U.S., getting more than $12 billion from 2008 to 2010. In the coming years, Verizon could see these subsidies rise with new legislation that reforms the current Universal Service Fund as well as changes at the state level that may offer them even more benefits. Like GE, Verizon has denied these tax evasion allegations, stating that they pay billions in taxes every year, but like GE, Verizon is counting deferred taxes in these calculations, which may not be an accurate reflection of their annual tax liabilities.

ExxonMobil is another big business that has been called out on its tax practices. The company refutes most of the allegations against it and says it gets hefty refunds from the government because it overpays taxes, claiming to have paid more than 47% of its profits in taxes. Since the company has chosen to keep its tax bill private, everyday citizens may never really know the true story about its tax filings, but research conducted on the company shows that most of the taxes it paid were not in the U.S., where the company is based. The world’s second largest company shelled out $15 billion in taxes, but not a cent of that went to the IRS. In fact, ExxonMobil actually got a refund from the U.S. government to the tune of $46 million. By sheltering subsidiaries in countries with little or no tax, the company saves billions in taxes, a process that’s questionable, but currently quite legal.

Boeing may own and operate factories and research facilities all over the U.S., but the mega-corporation isn’t paying much back to the government for the privilege of doing business in this country. In fact, the company hasn’t paid anything at all for three years running. Over those three years, Boeing made $9 billion in profits but didn’t pay anything in federal income taxes, actually getting back more than $178 million in tax benefits. Oddly enough, this doesn’t seem to be enough for the aeronautical giant, which has lobbied for tax cuts for corporations and has been a vocal critic of the current 35% tax rate.

If you’ve tried to mail a package in the past few years, you know it’s not cheap. Yet FedEx, one of the leaders in this industry, isn’t paying much of anything to the government despite making a large profit. A study found that in 2008 FedEx paid no federal taxes, which the company claims is an anomaly caused by depreciation deductions. The company claims to pay a tax rate of 36% in most tax years, but many in the area aren’t buying it, staging protests in Memphis to draw attention to what they see as one of the worst corporate tax offenders.

In 2010, this search engine company brought in a profit of $10.8 billion, not too shabby at any time, but especially impressive during a recession. Yet very little of this income goes back to the government in the form of taxes, with Google paying a tax rate that’s around 2.4%. Google avoids shelling out for that 35% tax rate by reporting income from overseas tax havens, patenting products abroad, and licensing technologies from subsidiaries abroad. While these things might be legal, it also means Google may want to take a hard look at its motto “don’t be evil” as these large-scale evasive practices can have a big impact on government resources, holding back infrastructure advancements that could seriously benefit the company in the long run.

It shouldn’t come as much of a surprise that a man with as sullied of a reputation as Rupert Murdoch isn’t exactly playing fair when it comes to taxes. Yet many may not realize how much of a tax boon the tycoon’s News Corp brings in each year. On top of more than $10.4 billion in profits between 2007 and 2010, the company scored an additional $4.8 billion in tax refunds. That means that during those four years News Corp’s tax rate was effectively negative 46%, an astoundingly high figure that many others on this list can’t hope to match, even with some very fancy accounting. How do they do it? The company uses some very basic tax minimizing strategies: using intra-company transactions, allocating costs to locations that impose taxes and profits to locations that charge low or no taxes, buying companies with tax losses, deferring taxes owed to future years, and using a variety of subsidiary locations as tax havens to avoid paying taxes in the U.S. What’s worse, all of these tactics are entirely legal, though there is some room for debate on their level of ethicality.

Amazon may be one of America’s most beloved retailers, but the company isn’t perfect in its business practices. In fact, it’s far from it. Amazon made a killing between 2005 and 2009, bringing in a whopping $3.5 billion in profits. Yet of this huge sum, little was paid in taxes, with the online company paying just $152 million over that four-year span. That’s a tax rate of just 4.33%. Yet Amazon’s tax sheltering tactics, many similar or identical to others on this list, are perfectly legal and the company makes even more profit by refusing to pay out sales tax in many states around the country.

Carnival Cruise lines isn’t doing poorly when it comes to making a profit, even in a recession as families cut back on vacations and expensive trips. Between 2005 and 2009, Carnival brought in well over $11 billion dollars in revenue, yet during this same time the company paid only $126 million in taxes. That may sound like a lot of money, but if you do the math, it’s an effective tax rate of just 1.12%, far below the 35% that corporations are supposed to pay. Carnival avoids these taxes by taking advantage of an obscure provision in U.S. tax codes that permits shipping companies to avoid taxes by incorporating overseas and flying the flags of other countries. Carnival is incorporated in Panama, so much of its income isn’t subject to U.S. tax laws, even though the Cruise line takes advantage of U.S. Coast Guard protection, docks, bridges, customs officials, and other important amenities, not to mention U.S. business.

We’ve listed just a few major tax “dodgers” here, but there are many others that could make the list as well, including Pfizer, Wells Fargo, Honeywell, Yahoo!, Goldman-Sachs, BP, AT&T, IBM, Bank of America, and Citigroup, just to name a few. A nice thought to keep in mind as you file your own, most likely considerably higher, taxes this April.